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UOB Kay Hian upgrades SATS to 'buy' after sharp drop in share price​


https://www.theedgesingapore.com/ca...pgrades-sats-buy-after-sharp-drop-share-price
UOB Kay Hian analyst Roy Chen has upgraded SATS to “buy” from “hold” previously after the airline ground handler and food catering services provider saw a sharp drop in its share price after announcing that it has proposed to acquire Worldwide Flight Services (WFS).

Chen’s report dated Oct 19 comes after an investor meeting with SATS during UOB Kay Hian’s Asian Gem Conference on Oct 18. The meeting was attended by 19 institutional investors. At the meeting, SATS’s management shared more insights and answered more questions on the WFS deal.

On Sept 28, SATS announced its plans to acquire WFS, which is the world’s largest air cargo handling firm, for EUR1.19 billion ($1.64 billion) in cash.

Since SATS’ first trading halt on Sept 21 related to the WFS deal, SATS’ share price has declined 33% from $4.06 before the trading halt to $2.72, which is the company’s closing price on Oct 18, notes Chen.

“This is likely due to the market’s unfavourable view towards the deal and the weak sentiment towards the equity raising plan,” he says. “During this period, $1.5 billion worth of SATS’ market cap has been evaporated; this is equivalent to about 45% of WFS’ acquisition enterprise value of $3.1 billion”.

On the back of the sharp drop in its share price, SATS’s risk-reward profile is now more attractive in the analysts’ view, with the current share price suiting investors with a long-term horizon, Chen adds.

“Assuming SATS’ existing business is still worth the value as it was and attributing all market cap drop to the deal of WFS, the market is now effectively valuing WFS at an enterprise value of $1.6 billion (being transaction enterprise value of $3.1 billion less SATS’ market cap drop of $1.5 billion),” Chen writes.

“This means, if one buys SATS at the current price, he is effectively paying only 4.9x ebitda (based on WFS’s 12- month ebitda ended March) for the WFS deal, instead of the original transaction EV/ebitda multiple of 9.7x,” he adds. “The effective 4.9x EV/ebitda looks attractive, considering that this is pre synergy and WFS is the top global air cargo handler.”

Furthermore, the implied valuation of 4.9x EV/ebitda is cheap, compared to the previous transactions made by SATS’s peers. The historical peer transaction range usually came at a range of 10.1x-10.7x.

A lower target price

Despite the upgrade, Chen has lowered his target price estimate to $3.08 from $3.82 previously. The new target price is based on a sum-of-the-parts (SOTP) valuation, which factors in “very conservative” valuation metrics for WFS.

“To derive the fair valuation for SATS, we first get the standalone valuation for SATS’ existing businesses by discounted cash flow or DCF (8.0% weighted average cost of capital or WACC) and then add the valuation impact of the WFS deal, which in turn is determined by our conservative valuation for WFS (based on 7x ebitda, very conservatively pegging to the fire sale valuation multiple of Swissport) less the WFS acquisition cost (based on 9.7x ebitda),” Chen explains.

“We prefer to be conservative in the valuation of WFS, due to the higher risk-free rates today (compared with when SATS negotiated the deal valuation), weakening global air cargo outlook in the near term (as highlighted by a few leading air cargo operators including FedEx and DHL), and the lack of financial details of WFS,” he says. “We will review our valuation for SATS pending more clarity on the WFS deal.”

In his report, Chen has kept his earnings estimates unchanged as he has yet to incorporate WFS’s financials into his projections for SATS.

However, at this point, the analyst sees no strong near-term catalyst for the latter.

“The uncertainties related to the WFS deal may remain an overhang on share price in the near term,” Chen writes, adding that SATS’s investors may need to adopt a medium-to-long term view.

In his opinion, medium-term catalysts could include SATS successfully integrating WFS and delivering its forecasted synergies. An improving global air cargo outlook would also help boost the airline ground handler and food catering services provider’s share price, he adds.

As at 1.50pm, shares in SATS are trading 3 cents lower or 1.10% down at $2.69.
 

TehSi99

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SATS

UOB Kay Hian upgrades SATS to 'buy' after sharp drop in share price​


https://www.theedgesingapore.com/ca...pgrades-sats-buy-after-sharp-drop-share-price
UOB Kay Hian analyst Roy Chen has upgraded SATS to “buy” from “hold” previously after the airline ground handler and food catering services provider saw a sharp drop in its share price after announcing that it has proposed to acquire Worldwide Flight Services (WFS).

Chen’s report dated Oct 19 comes after an investor meeting with SATS during UOB Kay Hian’s Asian Gem Conference on Oct 18. The meeting was attended by 19 institutional investors. At the meeting, SATS’s management shared more insights and answered more questions on the WFS deal.

On Sept 28, SATS announced its plans to acquire WFS, which is the world’s largest air cargo handling firm, for EUR1.19 billion ($1.64 billion) in cash.

Since SATS’ first trading halt on Sept 21 related to the WFS deal, SATS’ share price has declined 33% from $4.06 before the trading halt to $2.72, which is the company’s closing price on Oct 18, notes Chen.

“This is likely due to the market’s unfavourable view towards the deal and the weak sentiment towards the equity raising plan,” he says. “During this period, $1.5 billion worth of SATS’ market cap has been evaporated; this is equivalent to about 45% of WFS’ acquisition enterprise value of $3.1 billion”.

On the back of the sharp drop in its share price, SATS’s risk-reward profile is now more attractive in the analysts’ view, with the current share price suiting investors with a long-term horizon, Chen adds.

“Assuming SATS’ existing business is still worth the value as it was and attributing all market cap drop to the deal of WFS, the market is now effectively valuing WFS at an enterprise value of $1.6 billion (being transaction enterprise value of $3.1 billion less SATS’ market cap drop of $1.5 billion),” Chen writes.

“This means, if one buys SATS at the current price, he is effectively paying only 4.9x ebitda (based on WFS’s 12- month ebitda ended March) for the WFS deal, instead of the original transaction EV/ebitda multiple of 9.7x,” he adds. “The effective 4.9x EV/ebitda looks attractive, considering that this is pre synergy and WFS is the top global air cargo handler.”

Furthermore, the implied valuation of 4.9x EV/ebitda is cheap, compared to the previous transactions made by SATS’s peers. The historical peer transaction range usually came at a range of 10.1x-10.7x.

A lower target price

Despite the upgrade, Chen has lowered his target price estimate to $3.08 from $3.82 previously. The new target price is based on a sum-of-the-parts (SOTP) valuation, which factors in “very conservative” valuation metrics for WFS.

“To derive the fair valuation for SATS, we first get the standalone valuation for SATS’ existing businesses by discounted cash flow or DCF (8.0% weighted average cost of capital or WACC) and then add the valuation impact of the WFS deal, which in turn is determined by our conservative valuation for WFS (based on 7x ebitda, very conservatively pegging to the fire sale valuation multiple of Swissport) less the WFS acquisition cost (based on 9.7x ebitda),” Chen explains.

“We prefer to be conservative in the valuation of WFS, due to the higher risk-free rates today (compared with when SATS negotiated the deal valuation), weakening global air cargo outlook in the near term (as highlighted by a few leading air cargo operators including FedEx and DHL), and the lack of financial details of WFS,” he says. “We will review our valuation for SATS pending more clarity on the WFS deal.”

In his report, Chen has kept his earnings estimates unchanged as he has yet to incorporate WFS’s financials into his projections for SATS.

However, at this point, the analyst sees no strong near-term catalyst for the latter.

“The uncertainties related to the WFS deal may remain an overhang on share price in the near term,” Chen writes, adding that SATS’s investors may need to adopt a medium-to-long term view.

In his opinion, medium-term catalysts could include SATS successfully integrating WFS and delivering its forecasted synergies. An improving global air cargo outlook would also help boost the airline ground handler and food catering services provider’s share price, he adds.

As at 1.50pm, shares in SATS are trading 3 cents lower or 1.10% down at $2.69.

ST Eng also dropped a lot. Also consider a BUY by UOB Kay Hian?
 

stanlawj

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UOB Kay Hian upgrades SATS to 'buy' after sharp drop in share price​

In his opinion, medium-term catalysts could include SATS successfully integrating WFS and delivering its forecasted synergies. An improving global air cargo outlook would also help boost the airline ground handler and food catering services provider’s share price, he adds.
Typical sell side analyst assumptions that will not come true.

Correct interpretation: SELL SATS as WFS is an overvalued acquisition.
 

Shion

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CCCS consults on Sats proposed acquisition of world’s biggest air cargo handler​


https://www.straitstimes.com/busine...uisition-of-world-s-biggest-air-cargo-handler
SINGAPORE - The Competition and Consumer Commission of Singapore (CCCS) is seeking public feedback on the proposed acquisition of Worldwide Flight Services (WFS) by Sats.

In a statement on Monday (Nov 7), CCCS said it accepted an application from Sats, and the entity that is selling WFS, for a decision on the proposed transaction.

The competition watchdog is assessing whether the proposed transaction would infringe section 54 of the Competition Act, which prohibits mergers that have resulted, or may be expected to result, in a substantial lessening of competition within any market in Singapore.

In September this year, Sats announced the proposed acquisition of WFS, the world’s largest air cargo handling firm, “to create a global leader in the aviation services sector”.

The proposed acquisition of WFS from an affiliate of investment firm Cerberus Capital Management would be for a cash consideration of around 1.2 billion euros ($1.7 billion).

WFS is based in Paris, France, and primarily provides cargo handling services, ground handling services, passenger and premium lounge services, as well as other freight-related services. In Singapore, WFS operates under the brand name JetQuay and manages the JetQuay CIP Terminal, a separate private terminal at Changi Airport.

Both Sats and the seller of WFS have said that the proposed transaction will not result in a substantial lessening of competition in Singapore, as there is no overlap of ground handling services, given that WFS does not provide any ground handling services in the country.

The parties noted that there is “no competitive overlap in the provision of premium passenger services in Singapore”, and said that customers such as airlines or credit card companies would also be able to switch and self-supply premium passenger services such as lounges.

Sats shares have fallen more than 30 per cent from the closing price of $3.87 on Sep 27, before the proposed acquisition was announced. The counter closed at $2.70 on Monday, up 1.1 per cent or $0.03, before the CCCS announcement.

CCCS is inviting public feedback until Nov 18, 5 pm, and more information on the public consultation can be found on the CCCS website.
 

Shion

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SATS posts S$9.9 million loss in Q2; says rights issue will not exceed S$800 million​


https://www.businesstimes.com.sg/co...ays-rights-issue-will-not-exceed-s800-million
INFLIGHT caterer and ground handler SATS on Wednesday (Nov 9) reported a net loss of S$9.9 million for its second quarter, reversing a year-ago profit of S$6.8 million, as operating expenses rose and lower government grants were received.

Excluding the effect of reliefs, net loss for the three months ended Sep 30 would have been S$19.7 million, an improvement from the S$30.1 million net loss excluding reliefs in the year-ago period, the company said in a bourse filing.

During the second quarter, SATS revenue rose 46 per cent to S$429 million, as its food and gateway segments reported higher revenue on the back of aviation recovery and the consolidation of revenue from Asia Airfreight Terminal.

Operating expenses climbed 48.9 per cent to S$437 million, due to factors such as higher staff costs and lower job support grants, the group said.

For the first half of its financial year, SATS revenue climbed 41.3 per cent on year to S$804.5 million, driven by growth in cargo volume and recovery in travel demand.

“Travel recovery is on track and picking up pace with further improvements expected in coming quarters,” the group said.

The group’s net loss for H1 FY23 stood at S$32.5 million, a reversal from the net profit of S$13.2 million in the year-ago period. Excluding the impact of government reliefs, net loss for H1 FY23 would have been S$51.7 million, an improvement from S$65.5 million loss in the prior-year period.

No dividend was declared, as the board said “it would be prudent to not pay a dividend until SATS restores profitability without government reliefs”.

Meanwhile, SATS also provided an update on its proposed acquisition of Worldwide Flight Services (WFS), which was announced in September this year. It said it is “at an advanced stage of finalising its funding plan” for the proposed acquisition.

The company said the proposed rights issue will not exceed S$800 million. With the total acquisition cost of S$1.8 billion, the balance will be funded primarily through a combination of term loans and internal cash, SATS said.

“SATS has received term loan proposals from the company’s principal bankers at favourable market terms,” the company said, adding it believes this funding mix is “optimal”, given the current market conditions.

The rights issue is targeted to be launched after an extraordinary general meeting, expected to be convened in January 2023, with further details of the funding plan to be announced prior to the meeting.

SATS shares rose 1.5 per cent or S$0.04 to close at S$2.72 on Wednesday, before the announcement.
 

Shion

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Sats unveils funding for acquisition of air cargo giant Worldwide Flight Services​


https://www.straitstimes.com/busine...-of-air-cargo-giant-worldwide-flight-services
SINGAPORE - Singapore-based ground handling and logistics player Sats has revealed how it will raise the $1.8 billion needed for its purchase of European air cargo and logistics giant Worldwide Flight Services (WFS).

The funds will be generated via a combination of $700 million through euro-denominated term loans and $800 million in a renounceable rights issue of new shares, with the balance coming from internal resources.

While no details were provided on how many rights shares would be issued or the price, the company said it would get the term loan at a favourable rate of 4 per cent to 4.5 per cent.

Temasek, which owns 39.68 per cent of Sats, has committed to taking up its rights entitlements, while DBS Bank, Citi and Bank of America will underwrite the issue.

Sats has about $680 million in cash on its balance sheet to meet the internal funding needs.

Details of the funding come two months after the company announced plans to buy the much larger WFS, which is the market leader in North America and Europe for cargo handling, with 114 cargo stations and more than 800,000 sq m of warehouse space via 170 on-airport leased warehouses.

Sats said the acquisition would enable it to expand its footprint beyond just Singapore and the region to become the world’s largest air cargo and warehousing player.

The combined entity would have about 205 cargo and ground stations around the world, compared with Zurich-based Swissport, which has 92 cargo stations.

About 85 per cent of Sats’ revenue now comes from Singapore, but the enlarged entity would see 45 per cent come from Asia, 30 per cent from the Americas and the rest from the Middle East and Europe.

The enlarged Sats would also see a more diversified business mix, with half the revenue coming from cargo, almost a third from food solutions and the balance from ground handling.

Analysts note that revenue would triple from $1.2 billion now to $3.8 billion during the first year after the deal is completed, while earnings per share would surge from 1.8 cents to 3.2 cents.

However, the market has sold down Sats shares since the Sept 28 announcement on fears that the company would be taking on enormous debt (it would assume about $1.7 billion of WFS borrowings), diluting its earnings per share, and would not be in a position to pay dividends for at least three more years (Sats has traditionally paid out 70 per cent to 80 per cent of earnings as dividends to shareholders).

Analysts calculate that the deal could raise Sats’ gearing to 90 per cent, while the net debt-Ebitda (earnings before interest, tax, depreciation and amortisation) ratio could rise from 0.5 times now to 3.4 times.

The stock, which was trading upwards of $3.80 two months ago, is struggling to stay above $2.70 now.

But chief financial officer Manfred Seah suggested the fears were misplaced. “The cost of our credit is just 4 per cent to 4.5 per cent, which is low,” he said.

“The combined entity would generate sufficient cash flow from higher Ebitda.”

He pointed out that during the pre-Covid-19 years, Ebitda was between $250 million and $300 million, while WFS’ is about $350 million. The synergies from the combination are expected to add another $100 million in Ebitda, and potentially generate about $550 million to $600 million in cash.

As for WFS’ debt, which is denominated in both US dollars and euros, Mr Seah said the enlarged company would move to rationalise, deleverage and pay this down over the next few years.

Turning to the issue of dividends, he said that while the company would be cognisant of the need to maintain a balance between retaining funds for growth and rewarding shareholders, it remained committed to paying dividends “as long as it was profitable without government relief or assistance”.

He hinted that the $800 million rights issue would not be as dilutive as the market feared. Also, as the synergies of the combination kicked in, the earnings would start accelerating in about two to three years, raising the earnings per share.

Asked about fears that Sats could become stuck in an “unhappy marriage” with a much bigger partner, he said: “This is not a pie-in-the-sky deal.

“Neither is it growth for growth’s sake. We have been watching this company for some years and went into a deep dive with due diligence over the last 10 months.

“This is a strategic move to diversify our footprint and defend our turf, which is under threat all the time. The capacities and capabilities of the combined business should not be underestimated.”

He said the deal had also priced in recession scenarios.

“Look, this is a prized asset. And if you want a prized and rare asset like a good class bungalow in Singapore or a prime beachfront property, you don’t wait until the storm blows over. A prized asset is a prized asset in whatever weather. If you can get it at the right price, and it fits your strategy, you have to go for it.”

He added that since there was very little overlap and replication of the Sats and WFS businesses and geographies, the current management of both companies would continue to lead the combined and enlarged entities.

“We will retain the senior management team at WFS to continue running the company,” he said.

Sats will call on its shareholders to vote on the acquisition early in 2023, and complete the deal during the first quarter.
 

usarmy

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Sats has lied to investor for the dividend part. During covid they promised to give the moment they stop receiving garment funding. Since quarter backs they already have cash on hand but was told need to keep cash so to remain prudent, then put of sudden announcing acquisition. SIA is in bigger **** yet still paying out dividend..

I have lost the trust in the company.


Sent from EDMWER!
 

vsvs24

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Have not see any voting fail if temasick is behind it. SCM, SCI, Keppel, NOL... So many examples.


Sent from EDMWER!
Keppel and SCM have not voted yet right ? But they sweeten the deal for SCM.

Somehow I sense Temasek not as enthusiastic over this compared to the others. They don't want to underwrite.
 

reddevil0728

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Sats has lied to investor for the dividend part. During covid they promised to give the moment they stop receiving garment funding. Since quarter backs they already have cash on hand but was told need to keep cash so to remain prudent, then put of sudden announcing acquisition. SIA is in bigger **** yet still paying out dividend..

I have lost the trust in the company.


Sent from EDMWER!
got link to the press release?
 

vsvs24

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This part

During the last 2 years AGM, shareholders have been asking when the company plan to resume dividends. Both years the reply was the company prefer to be prudent.

See Para 16.4 of the minutes to the AGM.

16.4 A shareholder enquired whether dividend payment to Shareholders would likely resume this year.

Chairman replied that at the start of the pandemic, the Board had assessed and decided that it would be prudent for SATS not to pay any dividends until it becomes profitable without government relief, and Management was working hard at achieving
that. She added that declaring a dividend would much depend on SATS’ trajectory of growth and the ability to win the yields from that growth. The Board and Management sought Shareholders’ patience and support as the Company works towards that goal.

https://www.sats.com.sg/docs/defaul...22/sats-49th-agm-minutes.pdf?sfvrsn=10f2b45_0
Now besides having to take out loans to finance part of the acquisition, SATs is also taking over the debts of WFS.
 

reddevil0728

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During the last 2 years AGM, shareholders have been asking when the company plan to resume dividends. Both years the reply was the company prefer to be prudent.

See Para 16.4 of the minutes to the AGM.

16.4 A shareholder enquired whether dividend payment to Shareholders would likely resume this year.

Chairman replied that at the start of the pandemic, the Board had assessed and decided that it would be prudent for SATS not to pay any dividends until it becomes profitable without government relief, and Management was working hard at achieving
that. She added that declaring a dividend would much depend on SATS’ trajectory of growth and the ability to win the yields from that growth. The Board and Management sought Shareholders’ patience and support as the Company works towards that goal.

https://www.sats.com.sg/docs/defaul...22/sats-49th-agm-minutes.pdf?sfvrsn=10f2b45_0
Now besides having to take out loans to finance part of the acquisition, SATs is also taking over the debts of WFS.
With the second part of the sentence, doesn’t seem to be so clear after all…
 
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